Posted by Alao Salimon on
The Bankers Committee has agreed on nine per cent interest rate for loans extended to small and medium scale enterprises....
The Bankers Committee has agreed on nine per cent interest rate for loans extended to small and medium scale enterprises (SMEs) under the Small and Medium Enterprises Equity Investment (SMEEIS) scheme.
In new guidelines released last week, the committee (comprising the Central Bank of Nigeria and chief executives of banks), stipulated that funds invested into SMEs by participating banks shall be in the form of loans or equity investment or a combination of both. The committee noted that the interest on such loan must be single digit subject to a maximum of nine per cent.
The bankers said the coupon rate for preference shares in equity investment shall not be more than nine per cent and the maximum amount investible in any enterprise is limited to 20 per cent of the bank's annual SMEEIS fund subject to a maximum of N500 million.
The category of companies that are eligible to participate in the scheme has also been increased to include enterprise with a maximum asset base of N1.5 billion excluding land and working capital (as against N500 million previously) and with no limit to the number of staff in the payroll of the company compared with a maximum of 30 staff stipulated in the old guidelines.
Also, the time limit to invest the funds set-aside has been reduced from 18 months to 12 months after the annual general meeting of a participating bank while banks are allowed to remain equity partners in the business enterprises for a minimum of three years after which they may exit at their convenience.
Sectoral allocation of funds in the scheme has been fixed at 90 per cent maximum for service or real sector while 10 per cent is allowed for microfinance institutions. According to the Bankers Committee, the scheme shall continue after the first five years but banks' contributions to SME reserves would thereafter reduce to five per cent of their profit after tax as against profit before tax contained in the old guidelines.
Incentives on the scheme have been put at 100 per cent investment allowance to be enjoyed by banks on their contribution to the scheme, reduction in tax rate paid by SMEs to 10 per cent, provision of five years tax holiday to SMEs under the scheme and fund divested under the scheme were exempt from capital gain tax.
The SMEEIS scheme is a voluntary initiative of the Bankers' Committee approved at its 246th meeting held on 21st December, 1999 aimed at pooling funds for financing of the SME sector. The initiative was in response to the federal government's concerns about banks' apathy to funding of SMEs despite the fact that SMEs are essential vehicles for rapid industrialisation, sustainable economic development, poverty alleviation and employment generation.
Initially under the scheme, each bank operating in Nigeria is required to set aside 10 per cent of their profit after tax (PAT) for equity investment or loan to SMEs.
The scheme is subject to review after every five years.